Tax-Smart Investing: Are You Leaving Money on the Table?
Here’s a question every investor should ask:
Am I paying more in taxes than I need to pay?
Most people fixate on performance – checking their returns, comparing them to market benchmarks, celebrating growth.
But savvy investors know something else: What matters isn’t how much you earn – it’s how much you’ll get to keep after taxes.
Tax-smart investing can quietly add thousands to your long-term wealth. Even modest savings, when compounded over decades, can make a substantial difference.
Let’s look at three simple things you can do to keep more of your hard-earned money.
- Be smart with your charitable giving
If you’re a retiree who gives to a church or nonprofit, a Qualified Charitable Distribution (QCD) is a tax-efficient giving strategy you need to know about.
Here’s how it works: Once you reach age 70½, you can donate directly from your IRA to a qualified charity. These gifts count toward your required minimum distribution (RMD) but are excluded from your taxable income.
For many investors, this approach provides greater tax savings than taking a traditional charitable deduction. You support causes you care about and reduce your tax bill at the same time.
Yet many people don’t take advantage of this option. They continue writing checks from their bank accounts instead of using this tax-saving giving strategy. In doing that, they’re leaving money on the table. (Or more accurately, sending it to the U.S. Treasury.)
- Consider a Roth IRA conversion
A Roth conversion involves moving money from a traditional IRA to a Roth IRA. Yes, you’ll have to pay taxes now on the amount you convert. But in exchange, you’ll get tax-free growth and tax-free withdrawals in the future.
Roth conversions can be especially powerful during lower-income years – think early retirement, before you start taking Social Security, or before RMDs kick in.
It’s important to analyze whether a Roth conversion makes sense for your specific situation. But when it does, it can provide significant long-term benefits – both for you and potentially for your heirs.
Understanding your retirement withdrawal strategy can help you identify the best years to do Roth conversions.
- Check your investment location
When it comes to taxes, not all investment accounts are created equal. And not all investments belong in every type of account.
Some assets are tax-efficient – like ETFs or individual stocks held long-term. These fit well in taxable brokerage accounts because they generate minimal taxable income along the way.
Other assets are tax-inefficient – such as bond funds or actively managed mutual funds that generate regular interest or capital gains distributions. These are often better housed in retirement accounts (like IRAs or 401(k)s) where taxes are deferred or avoided altogether.
Putting the right investments in the right accounts can result in big tax savings – something many investors overlook.
The bottom line
Smart investing is more than chasing the highest return. It’s about keeping as much of that return as possible.
No investor wants to pay excess taxes. Yet many aren’t taking advantage of the strategies available to them. They’re sending extra money to the IRS – money that could be compounding for their future.
Do you see how small tweaks to your tax strategy can make a big difference over time?
At Meriwether, we help clients develop tax-smart investment strategies tailored to their unique situations. We look at the whole picture – your accounts, your income, your goals, and your values – so you can keep more of what you earn.
We believe your wealth should work for you, not against you through unnecessary taxes.
If you’re wondering whether you’re being tax-efficient with your investments, let’s have a conversation.
This content is for educational purposes only and should not be considered personalized financial advice. Please consult with a qualified financial professional to discuss your specific situation and needs.